Ambulance Chasers II

Why tort reform is still a good idea

Many Reason readers apparently despaired of my libertarianism after reading this column dealing with attempts to rein in the plaintiff's bar. Greg Burch, futurist, raconteur, libertarian and Texas lawyer summed up most of the arguments against imposing limits on trial lawyers fees on his blog. On further consideration, Burch and my other critics are still wrong. Why do I remain so obstinate on this issue?

First, although Burch dismisses ridiculous proliferation of warning labels, they are a strong symptom of a tort system out of whack. Furthermore, some of the same lawyers who got rich off the tobacco settlements are plotting even now how to use our civil courts in assaults on fatty foods and the gaming industry. Of course, we can be certain that these trial lawyers are performing this public service only because millions of injured clients have come clamoring to them for their help.

Second, let's consider the issue of jury awards raised by Burch. "Anyone who quotes statistics to support their position one way or another about 'tort reform' is either ignorant or intentionally deceptive," writes Burch. I'm not intentionally deceptive, so it may well be that I am ignorant. He is certainly correct that the there is no central register totaling jury awards to plaintiffs, much less civil settlements. And yet we do see proxy indications that civil awards are going up substantially. For example, although imperfect measures, relevant insurance rates are way up. Everyone knows that medical malpractice insurance rates are soaring. BusinessWeek noted a year and half ago: "Lawsuits over product liability, negligence, and discrimination increased at a 15% annual rate in the late 1990s. Starting in 2000, asbestos lawsuits reappeared with a vengeance. At least eight otherwise solvent companies filed for bankruptcy protection in 2001 after being named in asbestos cases. Standard & Poor's figures insurers will have to strengthen reserves for asbestos settlements by at least $30 billion."

But let's set that aside and get to the chief objection to my column—daring to suggest that limits be set to the fees charged by trial lawyers. Advocating this is evidently an unconscionable interference with the right of private parties to contract between themselves. Why? Because the civil courts are evidently in some sense "markets." Burch writes, "In a free market for legal services and claims, sellers and buyers will match themselves based on expected returns." Or as another reader more succinctly stated in an email to me: "You want to limit the incentives for enterprising attorneys which are freely bargained for in negotiations with plaintiffs who are willing to pay the costs." And yet another emailed me: "Explain to me how legal fees shouldn't be set the same way fees for all other professional services in the free market are set; i.e., by agreement between the buyer and the seller?"

Let's get this clear: Courts are not markets. They are government agencies. Lawyers are freelance bureaucrats. Keep in mind that in civil litigation one of the parties is generally in the courthouse under duress. Voluntary trucking and trading between plaintiff and defendant is not what is going on. The parties are in court often because some trucking or trading between them has already gone awry and they need the strong arm of the state to sort things out.

The only "sellers and buyers" over whom Burch is concerned are the plaintiffs and their lawyers. But they are not the ones paying the costs-defendants who are coerced into court are. In voluntary markets, one person exchanges something with another, say I give my grocer $10 and he gives me some bread, ham and jam. Courts are not in the business of voluntary exchanges; they are in the business of involuntary exchanges.

Burch suggests, "Plaintiff's lawyers are, in essence, professional evaluators of claims." Yes, indeed they are, and that's exactly the problem. The current system of high contingency fees encourages enterprising trial lawyers to push dubious cases through the courts on the off chance that the payoff will be enormous. In other words, they take big risks for potentially big profits. However, whether their gamble pays off or not, we all still get stuck with the costs for such things as the ridiculous proliferation of scientifically tested warning labels, defensive medicine and higher building costs.

Limiting lawyers' fees would encourage them to evaluate claims more closely and desist from using the civil court system as a kind of lottery. But if I haven't persuaded you that it is not a violation of liberty for state agencies to limit the fees charged by those accessing those agencies, perhaps there are other more unobjectionable ways to stop tort abuse. As another reader emailed me: "Other parts of the tort reform agenda are obviously necessary and overdue. Caps on emotional distress and punitive damages, limitation of peremptory challenges that often weed out the most capable jurors, and—especially—some peer review gatekeeping before a patient may sue for medical malpractice, all make sense." Indeed they do.

Finally and perhaps most importantly, there is the "loser pays" rule. Under "loser pays," if a plaintiff loses the lawsuit, he must then pay the defendant's legal fees. Currently, as legal scholar Walter Olson pointed out in Reason, "[d]efendants pay plaintiffs' legal fees when they lose, but they do not collect payment for their legal fees when they win." From the point of view of plaintiff's attorneys this can be summarized as, "heads-I-win, tails-we're-even" which can only encourage the pursuit of marginal lawsuits.

There is another advantage to loser pays, as Federal judge Richard Posner notes, "The [loser-pays] rule makes weak cases less attractive to bring but strong cases less attractive to defend against." A plaintiff who has a strong case will get paid all the sooner and at lower cost. The bottom line is that the loser pays rule would make plaintiff's lawyers even better "professional evaluators of claims" before seeking to use the coercive power of the state. Surely no one would object to that.